Sound Medical embraces the change found in healthcare today
Medical supplies, equipment and pharmaceuticals will never cease to be relevant, says Read Patterson, co-founder and CEO of Sound Medical, Wilmington, N.C. “However, by whom and how they are bought has – and will continue to – change.”
It’s that changing market dynamic that Patterson and his company are pursuing. Vigorously.
“To me, change means opportunity,” he says. “In that light, we embrace the changing healthcare landscape and are jumping in head first.”
A passion for business
“I am an entrepreneur and have a passion for all business, honestly,” says Patterson, who co-founded Sound Medical with Dr. Greg Johnson in 2012. “It is the fulfillment and challenge that motivates me.”
Patterson received an undergraduate degree from University of North Carolina-Chapel Hill, and also studied at the London School of Economics. He, his wife, and their three children – an 11-year-old daughter and 8-year-old twin boys – live in Wilmington.
After college, Patterson worked for Red Hat software as the director of sales for the financial services vertical. As such, he was responsible for many of Red Hat’s earliest enterprise customers. “While at Red Hat, I realized my entrepreneurial passion, and saw Red Hat transform from an entrepreneurial start-up to a publicly traded, professional entity.”
Pursuing that entrepreneurial zeal, Patterson started a real estate development and construction company in 2003, which grew to $20 million in sales in 2005. “This was my first exposure to being an entrepreneur, and I loved every minute.”
He entered healthcare in 2008, when he joined PSS (now McKesson Medical-Surgical). “I am thankful for my time there,” he says. “PSS was a great company, with great people.” At PSS, he held various positions, most recently, director in the Health Systems Group, which was responsible for new business with national IDNs. “The most valuable lessons I learned at PSS were through my exposure to GPOs and the changing dynamics of the healthcare market at the IDN level,” he says. “I found this aspect of the industry to be challenging and complicated; but to me, it spelled opportunity.”
The opportunity
“About the time I entered this industry was the same time the ‘consolidation trend’ started to gain momentum,” he says. “Therefore, for me, ‘consolidation’ is the norm, and I have always had to find a way to be successful in this environment.
“Sound Medical was founded on the principal that there is great opportunity amongst the chaos. In that light, we aggressively and proactively seek to be part of the changing healthcare environment by working with IDNs and hospitals. We have success in retaining business [among physician practices] acquired by hospitals by having relationships with these IDNs from Day 1. In the end, we want to be the distributor that is given the business of the newly acquired clinic by the hospital/IDN.”
Sound Medical services physicians’ practices of all sizes, but it likes to focus on larger groups – physician practices ranging anywhere from 25 doctors, to 250 doctors across 25 locations, to larger IDNs with 50 or more locations. “Without a relationship with the larger players, I think any business in healthcare will have waning relevance,” he says. The company’s field sales force is focused on the Southeast, but Sound Medical services customers in all 50 states.
“We are heavily invested in technology and GPO relationships, which allows us to compete on all levels of price,” he says. “From there, we offer the best service platform, which presents our customers with solutions that drive efficiencies and revenue growth. With pricing being equal, we find that customers will gravitate toward us because of our agility, flexibility, easy-to-do-business-with nature, and our commitment to making our customer’s experience great.”
Sound Medical has made the investments in technology to help it scale, he continues. “We haven’t reinvented the wheel, but it does take capital investment,” says Patterson. The company runs a full ERP system, helping manage everything from warehousing to accounting. “We’ve definitely had to invest in additional modifications to the system to suit our needs around rebates, contracting, and managing massive amounts of data.”
Dealing with materials managers
Servicing today’s physician practices means, in many cases, working with IDN supply chain executives, he says. Rather than shirk relationships with materials management executives, Sound Medical embraces them.
“The goal of the [initial] meeting [with the supply chain executive] should be like any sales call – to meet with the decision-maker, ask questions, find pain, devise solutions, and ultimately, formulate a way to become their partner and present value,” he says. “For Sound Medical, by having a robust private label offering through NDC, and by being an authorized distributor of all the major GPOs, we have seen costs become homogeneous. Given this commoditization, why wouldn’t a health system want to do business with an intrinsically more efficient, nimble and caring company?”
That’s not to say the non-acute-care distributor won’t experience some scrutiny from supply chain executives, at least in the early stages of the relationship. But, the way Patterson sees it, mistrust spells more opportunity for the aggressive distributor that is willing to take the time to dispel those unfounded beliefs.
Because of declining reimbursements, it’s true that today’s supply chain executives care more about the price of a latex glove than they did 30 years ago, says Patterson. That’s why distributor margins have shrunk. Still, some materials managers believe that physician distributors have been overcharging their physician customers for years. But typically, they learn otherwise after integrating newly acquired physician practices into their supply chain system.
For materials managers, “it can be a self-learning process,” he says. Initially, they may use their existing supply chain infrastructure to service newly acquired physician offices as if those offices were another unit in the hospital, he says. But at some point, they realize that acute and non-acute distribution are vastly different, and that frequent, accurate, on-time, low-unit-of-measure deliveries, and the availability of a field rep or customer service rep to resolve problems, are imperative. “If not, they will find 50 angry nurses calling them unceasingly,” says Patterson. At that point, they must decide if they can afford the cost and time to implement self-distribution (something very few can), or decide if they are willing to pay a slight premium to get the specialized service that the non-acute-care market demands.
Change is here
Distributors have to accept the fact that margins aren’t, can’t, and won’t remain at the same levels of years past, says Patterson. “That means we have to adjust our businesses to be more efficient, and we have to grow our volumes to replace this margin erosion. Change is here, and quite simply, we have to find a way to do more with less. However, I still believe this is a great industry.
“I love the healthcare market because of the growth metrics. I love the medical supply distribution industry because of its scalability. To remain relevant and successful, we need to continually adapt to our customers’ needs and expectations.
“Ultimately, our industry is still a relational business that is driven by sales and service. The speed of the game has increased, but the ‘blocking and tackling’ fundamentals are still the same.”